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© 2003 International Monetary Fund

November 2003

IMF Country Report No. 03/364

Guernsey—Crown Dependency of the United Kingdom: Assessment of the Supervision and Regulation of the Financial Sector Volume I—Review of Financial Sector Regulation and Supervision

This review of financial sector regulation and supervision in Guernsey in the context of the offshore financial center assessment program contains technical advice and recommendations given by the staff team of the International Monetary Fund in response to the authorities of Guernsey’s request for technical assistance. It is based on the information available at the time it was completed in October 2003. The staff’s detailed assessment of the observance of standards and codes can be found in Volume II. The views expressed in these documents are those of the staff team and do not necessarily reflect the views of the government of Guernsey or the Executive Board of the IMF.

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International Monetary Fund Washington, D.C.

Assessment of the Supervision and Regulation of the Financial Sector

Volume I: Review of Financial Sector Regulation and Supervision

Guernsey

October 2003

Front Matter Page

“The contents of this report constitute technical advice and recommendations given by the staff of the International Monetary Fund (IMF) to the authorities of Guernsey in response to their request for technical assistance. With the written authorization of the recipient country’s authorities, this report (in whole or in part) or summaries thereof may be disclosed to IMF Executive Directors and their staff, and to technical assistance providers and donors outside the IMF. Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than technical assistance providers and donors shall require the written authorization of the recipient country’s authorities and the IMF’s Monetary and Financial Systems Department.”

Contents

  • Preface

  • Acronyms

  • Executive Summary

  • Introduction

  • I. Financial System Overview

    • A. Background

    • B. Financial Institutions and Markets

      • Financial sector structure

      • Supervisory authority

    • C. Regulatory Framework Oversight—Market Integrity Arrangements

      • Legal framework

  • II. Strengths and Vulnerabilities in the Financial Regulatory and Supervisory Arrangements

    • A. Overview

      • Sectoral assessments

    • B. Actions to Strengthen the Observance of Standards and Codes

      • Authorities’ response to the assessment

  • III. Observance of Financial System Standards and Codes: Summary Assessments

    • A. Basel Core Principles for Effective Banking Supervision

      • Institutional setting and market structure

      • General preconditions for effective banking supervision

      • Principle-by-principle assessment

      • Authorities’ response to the assessment

    • B. FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

      • Information and methodology used for the assessment

      • Preventive measures for financial institutions

      • Summary assessment against the FATF recommendations

      • Authorities’ response to the assessment

    • C. IAIS Core Principles

      • General

      • Institutional and macroprudential setting—overview

      • General preconditions for effective insurance supervision

      • Principle-by-principle assessment

      • Authorities’ response to the assessment

    • D. IOSCO Objectives and Principles of Securities Regulation

      • General

      • Information and methodology used for assessment

      • General preconditions for effective securities regulation

      • Principle-by-principle assessment

      • Authorities’ response to the assessment

  • IV. Plan by the Bailiwick of Guernsey for Addressing the Recommended Action Plans of the International Monetary Fund to Enhance Compliance with International Regulatory Standards

    • A. Authorities’ Response to the IMF’s Recommended Action Plans

  • Text Tables

  • 1. Distribution of Staff in the Financial Services Industry 2002

  • 2. Assets and Liabilities of Licensed Banks at Year-End

  • 3. Recommended Actions to Improve Compliance with the Basel Core Principles

  • 4. Recommended Action Plan to Improve Compliance with the FATF Recommendations

  • 6. Recommended Action Plan for Observance of IAIS Insurance Core Principles

  • 7. Recommended Plan of Actions to Improve Observance of the IOSCO Objectives and Principles of Securities Regulation

Preface

In July 2000, the Executive Board approved a program of assessments on the basis of the paper “Offshore Financial Centers—The Role of the IMF,” published in July 2000. In this context, the government and the Guernsey Financial Services Commission (GFSC) invited the IMF to carry out an assessment of the extent to which the regulatory and supervisory arrangements for the financial sector complied with certain internationally accepted standards and measures of good practice (a Module 2 assessment as described in the above-mentioned paper).

The assessments were carried out during a mission from November 13–26, 2002. The mission was led by Mr. R. Barry Johnston (Monetary and Financial Systems Department (MFD)) and comprised Messrs. Neville Grant (Consultant MFD, Deputy Mission Chief); Ian Carrington (MFD); Ross Delston (Consultant, Legal Department); John Farrell; Helmut Müller; Jack Heyes; and Marcel Maes (all Consultants, MFD); and Mrs. Sandra Solares (Administrative Assistant, MFD). Detective Chief Superintendent Felix McKenna was the independent anti-money laundering expert for the AML/CFT assessment.

The mission undertook a review of all relevant current legislation and practices, and held discussions with the regulatory authorities, certain government officials, and a broad cross-section of the private-sector practitioners. The mission is most grateful for the excellent cooperation, openness, and hospitality of all the agencies consulted during its visit, and especially to the GFSC for the excellent organization of the visit.

Acronyms

AML

anti-money laundering

AML/CFT

anti-money laundering and combating the financing of terrorism

CISX

Channel Islands Stock Exchange

CP

Core Principle

DT Law

The Drug Trafficking (Bailiwick of Guernsey) Law, 2000

EC

European Community

EU

European Union

fiduciaries

company and trust service providers

FI

financial institution

FIS

Financial Intelligence Service

FT

financing of terrorism

GFSC

Guernsey Financial Services Commission

IAIS

International Association of Insurance Supervisors

IOSCO

International Organization of Securities Commissions

KYC

know your customer

LEG

Legal Department

MFD

Monetary and Financial Systems Department1

MOU

Memorandum of Understanding

MSB

Money Service Business

OFC

Offshore Financial Sector Assessment Program

OGBS

Offshore Group of Banking Supervisors

PCC

protected cell company

POI

The Protection of Investors (Bailiwick of Guernsey) Law, 1987

ROSCs

Reports on Standards and Codes

SRO

self-regulatory organization

STR

suspicious transactions report

States Assembly

Guernsey Parliament

Executive Summary

The financial, regulatory, and supervisory system of the Bailiwick of Guernsey complies well with the assessed international standards. The authorities are to be commended for the attention they have given to upgrading the financial regulatory and supervisory system to meet international standards in banking, insurance, securities, anti-money laundering (AML) and combating the financing of terrorism (AML/CFT), and best practices for company and trust service providers (fiduciaries). The mission noted in particular:

  • the comprehensive regulatory framework;

  • the proactive approach of the regulators to achieve high standards in the financial services sector; and

  • an off- and on-site supervisory process that has been addressing the key types of reputational risk to the Bailiwick.

The jurisdiction has been assessed to have a high level of compliance with the four standards. The legal framework for company and trust service providers is fully consistent with the Offshore Group of Banking Supervisors (OGBS) Statement of Best Practice.

The assessments identify the following areas where consideration should be given to further strengthen the legal, regulatory, and supervisory arrangements:

  • the functions and independence of the GFSC;

  • resources devoted by the GFSC to bank supervision;

  • certain supervisory and regulatory arrangements in banking and securities; and

  • the AML/CFT legal framework, the coverage of guidance notes, and communication of some policies.

The authorities are, therefore, encouraged to take actions in the following areas:2

  • enhance the independence of the regulator;

  • the GFSC Law should establish safety, soundness, and integrity of the financial system as the objectives of the GFSC and eliminate “development” as one of the GFSC functions;

  • address the resource deficit identified in the GFSC’s Banking Division;

  • enhance certain GFSC powers and procedures; and

  • enhance the legal framework on AML/CFT, broaden the coverage of the guidance notes in certain areas, and reinforce the communication of certain AML/CFT policies.

Guernsey-Crown Dependency of the United Kingdom: Assessment of the Supervision and Regulation of the Financial Sector Volume I—Review of Financial Sector Regulation and Supervision
Author: International Monetary Fund